| A Win-Win Situation |
|
I think we can all agree that it is a struggle to operate a profitable facility in today’s assisted living climate. As administrators and clinicians in this growing segment of the senior industry, you are forced to scrutinize every expenditure to the penny. Not quite the picture you painted in your mind as you entered this arena is it?
I’ve had the pleasure of speaking with quite a few ALF administrators during the past decade of my involvement in Long Term Care. Their ingenuity and meticulous budget management has always been impressive. However, in the majority of cases I have come away wondering why so few of them have capitalized on a very obvious revenue source… incontinence supplies. Resist the urge to turn this page for a moment and hear me out. I’ve done a bit of calculating and should be able to demonstrate my point (as quickly as someone fond of their own text is able). First of all, this will not work for everyone. Let me reveal my base model and you decide if this describes how your facility handles incontinence supplies. The base model is simply a facility where the family members of the residents (or the residents themselves) supply their own incontinence products. If this describes your facility, there may be some light at the end of the strained budget tunnel for you, your staff, and your family of residents!  The Manufacturer makes and sells the product to the Distributor (these are a network of different wholesale healthcare products distributors across the country) who in turn sells it to the end-user. In this case, your facility is the end-user. Like I said, it’s not exactly rocket science. The interesting thing to note here is, that with almost no exceptions, the family members of your residents are buying their incontinence supplies from a retailer. This would be your local Wal-Mart or Walgreen’s. While these retailers have convenient locations virtually everywhere, retail prices on incontinence supplies are extremely high. Look at this comparison below.  This illustration makes some general assumptions based upon conservative cost and margin averages in the incontinence industry. Usually this would be the small print at the bottom of the page written in “lawyerese” that we all ignore. However, in this case I’ll share with you the specifics. A huge percentage of the incontinence briefs used in this country are sold by the manufacturers to these wholesale distributors at a cost of approximately $25.00 per case. These distributors then mark it up an average of 20% in order to be able to afford handling the product and shipping it to the end-user (you). In the above and below illustrations I am using a Large size brief (generally produced in case quantity’s of 72 briefs/case) to illustrate the difference in cost between retail and wholesale. It is in the delta between these two costs where your budget relief may reside. The below illustration shows what the cost differential would be like if you compared a case of large incontinence briefs purchased retail vs. wholesale.  It’s difficult to imagine such a disparity in pricing. The family members of your cherished residents are paying over double what these products are available at on a wholesale level. Ouch! Now we get to the specifics of where your potential source of alternate revenue will come from, how you can tap into it, and what it will mean in profits to the facility for your efforts. The plan is to organize the family members and propose that they stop paying higher prices at their retail vendors and begin buying these incontinence products from you at a lower price. How much lower is up to you. If you planned to evenly split the difference in cost between the wholesale and retail figures above it would work out to the following model.
The acquisition cost operates on the assumption that the distributor can buy the Large brief at $25.00 from the manufacturer. They would then mark it up 20% and sell it to you for $31.25. If indeed you are planning to split the cost savings equally with the family members between wholesale to retail costs, you would be selling it to them for $49.46. This represents the following savings for them:
If all costing assumptions are correct, this could be a fairly substantial capital gain annually. For example, if your facility uses 10 cases of incontinence products each week you could be approaching almost $10,000 a year in profits! For the purpose of demonstrating the opportunity, I used incontinence briefs as the example. For the most part, the math is similar on all incontinence products. Of course, what an acceptable “carrying” margin is varies from distributor to distributor. In general, the more cases you are willing to buy from one of these distributors at a time, the better your price is. It is also important to note that there is time and effort involved in corralling the family members to buy from you. It also requires some administrative commitment (i.e. ordering, billing, paying distributor, etc.) so I believe that the profit you will make is indeed earned. In my opinion it more than pays for itself and also broadens the services you provide for your residents and their families. Most of you have stayed in this industry because of the gratification you get in helping others. Perhaps this is a way to extend that helping hand even further. {moscomment} |